Pentagon Policy Reforms Boost Innovation Base, Report Finds

A new report card from the Ronald Reagan Institute’s Center for Peace Through Strength finds the national security innovation base is improving its position as a driver of U.S. defense innovation, though the ecosystem still struggles to translate Pentagon modernization policy into operational technologies and capabilities.

“There’s a lot of initiatives underway, a lot of plans in place, from the president’s statements to what budget he’d like to see in rebuilding the military,” said Roger Zakheim, president of the institute during a Defense Writers Group breakfast Wednesday on the National Security Innovation Base Report Card release. “The dynamism of the American private sector remains the engine of U.S. innovation.”

The Impact of Acquisition Reform

The report notes that directives from War Secretary Pete Hegseth focused on acquisition reform and innovation are helping strengthen the national security ecosystem. According to the report card, the Pentagon’s unified technology enterprise has made an immediate impact on customer clarity, which the report grades a B-, up from a D+ in the 2025 report.

“The Pentagon’s modernization intent is clear and backed by renewed spending commitments,” the report reads. “SECWAR’s ‘Acquisition Transformation Strategy’ reinforces a deliberate push for faster, output-driven acquisition.”

Rachel Hoff, policy director at the Reagan Institute, said the grade reflects both policy direction and anticipated funding signals.

“The grade factors the stated intent, from acquisition reform to policy changes to the funding piece on FY26 appropriations, as well as signaling on FY27 appropriations,” Hoff said.

During Thursday’s 2026 National Security Innovation Base Summit, Under Secretary of War for Acquisition and Sustainment Michael Duffey said the department’s focus on acquisition speed and adaptability is driving broader change across the Pentagon.

“A theme throughout [the DOW acquisition modernization strategy] is that we’re recognizing, finally, inside the Pentagon, that we are no longer pacing the change of technology,” Duffey said Thursday. “We need to figure out how to restructure ourselves to absorb technology.”

Department of the Navy CTO Justin Fanelli said Thursday during the summit that DON has dramatically increased its pace of modernization and implementation of capabilities.

“Across the board, I think our adoption and our process and realistically how we’re making use of both commercial and other capabilities right now is where we want it to be,” he said. “We are testing, we are using exercises … thoughtfully preparing use cases, observing and then putting them into the field much faster than we were before.”

Defense Modernization Remains a Bottleneck

Despite progress in policy alignment, the report finds the Pentagon continues to lag in rapidly fielding capabilities and has yet to fully overcome the “valley of death.” The National Security Innovation Base (NSIB) indicator for defense modernization, which tracks how quickly innovation translates into operational capabilities at scale, remained stagnant with a D grade.

“There are certain capabilities that are not [available for DOW],” Zakheim said Wednesday. “The question is, ‘Why?’ And we see that captured in the defense modernization grade.”

Despite efforts to compress acquisition timelines through the unified tech enterprise memo, the report finds the average timeline for delivering major defense programs has increased by 18 months since 2024. Hoff added that the Defense Industrial Base (DIB), Congress and DOW still do struggle to align on modernization outputs, providing for the low grade in the report card.

“Production and modernization are sort of not revealing itself across the force like we think it should,” Zakheim added.

Zakheim cited the White House efforts in the Golden Dome, modernization memos and “dynamic” policy announcements as reasons for optimism.

“There is a tremendous effort at the policy level,” Zakheim added. “Some indicators that things are going to happen, sort of programmatically and budget wise, can ultimately drive defense modernization.”

Advanced Market Commitments Could Accelerate Production

The report also recommends the Pentagon adopt advanced market commitments (AMCs), a mechanism widely used in the private sector and some federal programs. The tool allows the government to guarantee future purchases, giving companies the confidence to invest in production capacity before contracts are finalized.

Eric Snelgrove, one of the report card’s authors, said Wednesday that the Pentagon already has the authority to use this mechanism but has not deployed it at scale.

“One of the recommendations that you actually saw highlighted in Secretary Hegseth’s acquisition reform memos is the use of advanced market commitments,” he said. “It’s a way to signal to industry that there’s a clear signal outside of traditional appropriations … and allows the private sector to make a lot of the capital expenditures that they need to do within the balance of multi‑year procurement.”

With Operation Epic Fury ongoing, he added that AMCs could increase scale and productivity for the DIB.

“It’s one of the tools in the toolbox that can help industry prepare for the types of scale of the manufacturing that we’re seeing clearly needed right now, especially with everything going on in the world,” he said.

Private Sector Momentum Strengthens Innovation Base

Hegseth’s Innovation Ecosystem memo notes that the department is encouraging traditional and nontraditional firms to be innovators. According to the NSIB report card, the Private Sector Innovator Base grade rose from a B+ to an A- this year.

“Dual-use and non-traditional players are expanding their footprint, capturing a small but growing share of Pentagon obligations (<1%) while channeling capital into scaling production,” the report card reads. “Investor confidence in defense tech is at an all-time high as disruptors deepen partnerships with primes and peers. Innovators are deploying internal R&D capital ahead of confirmed Pentagon demand.”

Fanelli said Thursday that DON’s new posture is not just desirable but necessary for a modern military service.

“We thankfully have a private sector who is able to speak that language … so that we have more trade space for those types of decisions,” Fanelli said.

Zakheim pointed to partnerships between traditional defense primes and emerging technology companies as a sign of the sector’s strength.

“Defense primes continue to partner with disruptors for novel capabilities,” he said. “There are innovative companies helping the prime solve some of their problems on manufacturing with innovative manufacturing.”

Duffey said Thursday that DOW is increasingly leveraging innovative private firms as a way to more efficiently bring forward capabilities.

“Every private capital dollar invested in creating value, that is one dollar that the Pentagon doesn’t have to spend,” Duffey said. “Our challenge, because there is so much great investment going on right now, [is to ask,] … ‘How can we help steer it to where the greatest value is provided?’”